DBRS, Inc. (DBRS Morningstar) confirmed the ratings of Truist Financial Corporation (Truist or the Company), including the Company’s Long-Term Issuer Rating of A (high). At the same time, DBRS Morningstar confirmed the ratings of its primary banking subsidiary, Truist Bank (the Bank). The trend for all ratings has been revised to Stable from Positive. The Intrinsic Assessment (IA) for the Bank is AA (low), while its Support Assessment remains SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.
KEY RATING CONSIDERATIONS
The revised trend reflects the wide and growing scale of the economic disruption resulting from the Coronavirus Disease (COVID-19) pandemic, which has already pressured the operating environment and will likely negatively impact the Company’s revenues and asset quality. Nevertheless, unprecedented support measures have been put in place through monetary and fiscal stimulus, as well as relaxed criteria from regulators, which will mitigate some of the negative impact of the crisis.
Truist’s ratings reflect its very strong super-regional banking franchise that is led by a highly experienced management team. Formed from the merger of BB&T Corporation and SunTrust Banks, Inc. (completed in December 2019), DBRS Morningstar views the combination as a compelling strategic fit, with attractive prospects. Specifically, the combination provides even greater scale and further diversifies the business mix and loan portfolio from what were already very strong franchises on a standalone basis. While DBRS Morningstar is wary of the substantial integration risk associated with such a large combination, especially in the current operating environment, these concerns are mitigated when considering the Company’s progress to date and senior management’s proven track record at their legacy institutions.
While DBRS Morningstar views Truist as being in the top tier of its rating category, an upgrade to the ratings is not expected in the near term given the current operating environment. Conversely, a prolonged adverse impact of the coronavirus resulting in a sustained deterioration in asset quality, or prolonged negative operating leverage, could result in a downgrade.
The Company’s very strong banking franchise is underpinned by a deeply entrenched deposit base, covering the South and Mid-Atlantic regions. Overall, Truist is the sixth largest U.S. commercial bank, with $473 billion in total assets at YE19 and leading deposit market share across the majority of states in which it operates. Additionally, Truist generates a comparatively high amount of noninterest income (around 40% of total revenue) driven by its insurance brokerage business, which is the fifth largest in the U.S., as well as its investment bank, which is the largest regional bank-owned investment bank in the country.
In 4Q19, Truist generated very good results, with an adjusted return on assets of 1.40% and strong asset quality metrics. However, we expect both earnings and asset quality to come under significant pressure during 2020. Positively, balance sheet fundamentals remain strong, providing key support to the ratings confirmation. Specifically, Truist has a robust funding and liquidity profile, supported by a substantial low-cost core deposit base and highly liquid securities portfolio, as well as readily available access to the FHLB, Federal Reserve and capital markets. Following the merger announcement, share repurchases were suspended and are not expected to resume in the current operating environment. Truist reported a CET1 ratio of 9.5% at YE19.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
All figures are in U.S. dollars unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations, 11 June 2019 (https://www.dbrsmorningstar.com/research/346375/global-methodology-for-rating-banks-and-banking-organisations) and DBRS Morningstar Criteria: Guarantees and Other Forms of Support, 22 January 2020 (https://www.dbrsmorningstar.com/research/355780/dbrs-morningstar-criteria-guarantees-and-other-forms-of-support), which can be found on our website under Methodologies & Criteria.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
The primary sources of information used for this rating include Company Documents and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com.
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